Comments: Budget on Economic Growth

Berry Everitt, CEO of the Chas Everitt International property group says Finance Minister Pravin Gordhan has made a brave – and somewhat unexpected – move in deciding to focus this year’s Budget on economic growth rather than “play it safe” with a contractionary plan to cut expenditure and reduce the country’s deficit at all costs.

“He has clearly taken the view that the only way for the country to move forward is to ‘spend on the right things’ – that is, on doing what it takes boosting consumer confidence, attracting investment, facilitating enterprise and fostering job creation. And we are delighted because these factors are also the keys to a healthy and growing real estate market.”

Nevertheless, he says, there is still going to be a massive revenue shortfall of more than R30bn this year, and taxpayers are still going to have to cover it.

“There is obviously great relief among the majority of consumers that there was no VAT increase in the Budget, but the more affluent will not be so pleased with today’s news. Anyone earning more than R1,5m a year will now have to pay tax at a 45% marginal rate, while those with equity portfolios will now be paying a 20% dividend tax. These new measures alone are expected to raise more than R11bn of the revenue shortfall.”

“In addition, the Minister announced only limited relief for ‘fiscal drag’ which means that most employees who get an increase this year will automatically pay more tax because they will be in a higher tax bracket. And on top of that, everyone is going to be affected by the increases of 30c/litre in the general fuel levy and 9c/litre in the road accident fund levy, whether they drive a vehicle or not, because higher fuel costs boost the price of anything that has to be transported.”

But the news is definitely not all bad. Specifically from the real estate point of view, we are very pleased with the decision to raise the Transfer Duty threshold from R750,000 to R900,000. We estimate that this will reduce the transaction costs for buyers at this level by about R15,000 to R20,000, and that it will prove especially encouraging to first-time buyers as it reduces the cash amount they need to save to enter the market by around R15,000 to R20,000.

“There will also be a benefit for repeat buyers who have equity that they can use to cover deposit and transaction costs, because they will probably now need to borrow less and be able to pay off their home loans faster.”

“Meanwhile, we were also pleased to note that there is to be no increase in Capital Gains Tax for now, which might have proved a deterrent to the buy-to-let investors we see coming back into the market now as the growth in the number of households accelerates and the demand for rental homes continue to rise.”

Everitt says further positives for property are the significant additional Budget allocations to boost the establishment of small businesses, road and rail transport and other industrial infrastructure, facilitate wider access to broadband internet, boost tourism and redevelop and improve urban housing environments.

“Nevertheless, most households will remain under pressure this year due to the higher cost of living and higher debt levels, and we don’t expect an immediate spike in home purchasing. As Mr Gordhan noted, it is going to take time for consumers to regain their trust and confidence in the economy and to feel the benefits of the policies laid out in today’s Budget.”

“They are also likely to adopt something of a ‘wait-and-see’ attitude towards the Minister’s promises that wasteful public sector expenditure really is being cut and that procurement and other corruption really will be tackled at all levels.”

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